Submission on safeguarding the future of our financial system: The role of the Reserve Bank and how it should be governed

14 February 2019: As part of phase 2 of the Reserve Bank Act Review, the Treasury has issued a consultation document which looks at the financial policy framework for the Reserve Bank of New Zealand and how it should evolve. This letter is our written submission.

1 February 2019

The Treasury


As part of phase 2 of the Reserve Bank Act Review, the Treasury has issued a consultation document which looks at the financial policy framework for the Reserve Bank of New Zealand (the Reserve Bank) and how it should evolve. It also discusses the role of the Reserve Bank in safeguarding the financial system, and how the Reserve Bank should be governed.

The role of the Controller and Auditor-General plays an important role in supporting a high-performing and accountable public sector. Our submission focuses on the parts of the consultation document that are relevant to our role.

We support work that seeks to strengthen governance and accountability arrangements, and support the performance of the Reserve Bank.

The best accountability arrangements generally involve several mechanisms that work together to ensure an appropriate level of transparency and scrutiny. Arrangements should be independent as far as possible, open and transparent, and accessible to Parliament and the public.

We support the removal of the provisions in the Public Audit Act 2001 that exclude the Reserve Bank from the Auditor-General’s mandate to inquire or carry out a performance audit. The Reserve Bank is the only public entity that is excluded from the Auditor-General’s mandate in this way.

When the Select Committee considered the draft Public Audit Bill in 2000, there was debate about whether allowing the Reserve Bank to be subject to the performance audit and inquiries powers of the Auditor-General would erode the operational independence of the Reserve Bank. There was also debate about whether the Auditor-General could, through a performance audit or by carrying out an inquiry, examine the Reserve Bank’s techniques for implementing monetary policy.

Our understanding is that section 167 of the Reserve Bank Act 1989 enables the Minister to appoint a person to carry out an assessment of the performance by the Reserve Bank, and if an assessment is carried out, it must be submitted to the Minister and tabled in the House of Representatives.

In our view, a performance audit or inquiry by the Auditor-General preserves the operational independence of the Reserve Bank more effectively than the current arrangements, because the Auditor-General reports to Parliament. In any event, it is not clear how often the current provision in the Reserve Bank Act is used, which suggests a need to consider whether accountability arrangements are working as may have been intended.

We acknowledge that the Auditor-General could inquire into or audit the implementation of policy. This is also true for other public entities, including other agencies with regulatory responsibilities related to financial markets. The Auditor-General takes particular care, however, to avoid commenting on government policy. A performance audit or inquiry would typically focus on organisational governance and performance, prudence, and probity issues. The Auditor-General consults with public entities on the content of performance audit and inquiry reports, and entities have an opportunity to raise concerns about findings prior to publication.

Thank you for the opportunity to contribute to the review. As we do with other submissions on government proposals, we will publish this submission on our website.

Yours sincerely

Signature - JR

John Ryan
Controller and Auditor-General